January, 2009 - The Real Estate Capital Scoreboard®
Chicago, Illinois, January 2, 2009 - The last month of the year ended on a dramatic note as the Fed forced key short-term indices into record-low territory. Meanwhile, the ongoing shortage of real estate capital dampens any meaningful mortgage rate reductions.
Important market highlights and trends for 2009 are as follows:
* Funds Resurfacing: Select life companies are cautiously returning -- one of the bright spots in an otherwise bleak market. These institutions are primarily targeting highly conservative opportunities and lower-leverage acquisitions.
* Refinancing Reigns: Since the market remains illiquid with sellers and buyers quite far apart on bid-ask sale negotiations, refinancing is the only option for generating significant loan volume. For example, borrowers with five and ten-year loans due this year should expect to see rates at about identical levels to the marketplace on ten-year maturities as compared to 1999. Five-year maturities are about 150 basis points higher than in 2004.
* Absolute Rates: Due to benchmark rate volatility, most lenders avoid pricing mortgage rates over spreads and instead offer absolute rates.
* Volatile Indices: Overall mortgage rates drifted slightly upwards for shorter-term fixed-rate maturities (five years), as lenders demand a premium for locking into this highly desirable term. In contrast, longer-term benchmark rates dropped by about 20 to 50 basis points, while lenders react cautiously to any corresponding mortgage-rate drops.
* Steep Yield Curve: The treasury curve remains steep with short-term yields approaching zero, indicating an extreme desire for safety void of any principal repayment risk. Shorter-term indices dramatically plunged by about 75 basis points or more, particularly LIBOR which dropped by nearly 150 basis points.
* Dominant Players: The Agencies (FNMA and FreddieMac) overwhelmingly dominate the multifamily lending arena, which is the most active property-funding sector. The Agencies offer below rates starting below 6% for shorter-term maturities and below 5% for floating-rate debt. Life insurance companies and banks dominate all other income-property sectors with rates relatively unchanged from the previous month -- hovering in the 6%-plus range for five-year term and 7% or more for longer-term loans.
According to Nat Zvislo, Research Director of the Real Estate Capital Institute, “2009 looks to be a year of refinancing and with limited acquisition activity.” Adding, “Distressed deals will be the norm for most new acquisitions and lenders will be overwhelmed with renegotiating overleveraged debt.”
- Contact Information
- Nat Zvislo
- Research Director
- The Real Estate Capital Institute®
- Contact via E-mail
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